A key eligibility requirement for USDA loans is an applicant's employment status, type and history. USDA loan employment requirements provide lenders with clear guidelines for assessing employment information, which protects the program's long-term stability and applicants' financial safety.
This article will detail everything you need to meet USDA loan requirements before applying.
Required Employment History for a USDA Loan
USDA employment requirements generally state that lenders must assess the last two years of your job history and income. Pay stubs, W2s, tax returns and other financial documents are acceptable proof of employment history.
Lenders will verify whether you meet the following two conditions:
- Your employment history is steady and likely to continue, and
- Your income is sufficient to take on the debt of a home loan.
Some gaps may receive an exception, such as if you recently left the military or completed your education. In these cases, you must submit additional documentation for consideration.
Self-Employment
Those who are self-employed must also demonstrate a two-year history of the business income.
However, analyzing self-employed income can be slightly more tedious than non-self-employed individuals. Due to the distinction between business and individual earnings, a self-employed applicant must submit the correct financial documents for both themselves and the business. To meet the needs of your specific situation, contact your lender for an exact list of required documents.
Neighbors Bank requires self-employed individuals to provide two years of tax returns, including their business income.
Can I get a USDA loan with less than two years of employment?
In some situations, you can get a USDA loan with less than two years of employment if you provide a solid reason for consideration. For instance, if you transitioned from being paid hourly to a salaried position with the same employer while remaining in a comparable or improved role, this could indicate that you have a reliable and stable source of income.
Your lender must be able to document the reason for your exception. Be prepared to submit extra documentation, such as a contract with your new title and compensation information.
Do USDA loans require two years at the same job?
No, USDA loan lenders do not typically require the borrower's two years of employment history to be at the same job or company. However, applicants who have not worked with their current employer for more than 12 months may experience higher scrutiny.
As previously mentioned, USDA employment requirements are in place to ensure that borrowers have a stable source of income that is likely to continue in the future. If you have changed jobs within two years, your lender will consider whether:
- Your job changes were within the same field or industry, suggesting career advancement or lateral moves rather than instability.
- You have had periods of unemployment, and if so, how long these periods were.
- Your income has been consistent or increasing over that time, indicating reliability.
Whose employment is considered for a USDA loan?
Other than the borrower or co-applicants applying to the loan directly, no other individual’s employment matters.
However, USDA loans have income limits that require all household members to stay below a certain income level. Due to this, the employment income of all adult (18 or older) household members living in the home, including primary applicants, co-applicants, and all other adults who intend to make the house their primary residence, is considered in the application process. Other forms of income, such as dividends from assets, will also be assessed.
The list of individuals whose employment income will never be counted towards a USDA loan includes:
- Dependent children under 18
- Foster children under 18
- Foster adults
- Live-in aides
USDA Policy on Full-time Students
Under USDA policy, the income of full-time students (18 or older) who are not the applicant, co-applicant, or spouse is partially excluded when determining household income eligibility.
Here’s how it works:
- Only the first $480 of their income is counted.
- Any earnings beyond $480 are not included in the household’s total income for USDA eligibility.
This means that if you are a co-applicant or spouse even if you are a full-time student, your full income will be considered for income limit eligibility.
USDA Loans with Variable Income
A job with earnings that fluctuate weekly, monthly, or seasonally is considered variable income. This includes part-time and seasonal work, commission-based jobs, and employment with gaps.
Common examples of variable employment include:
- Real estate agents
- Insurance salespeople
- Freelancers
- Rideshare drivers
- Hair stylists
- Bartenders and servers
- Contract workers
When assessing borrowers with variable income, loan underwriters take a different approach than they do for salaried or full-time employees. While salaried income is typically qualified based on a set pay rate, variable income requires further analysis to ensure stability and consistency.
There are also additional requirements and guidelines for variable employment that borrowers should be aware of.
Counting Overtime, Bonuses & Commission-Based Employment
Employment that regularly includes overtime, bonuses, and commission requires a minimum of 12 months (or one year) of income in the same or similar line of work. Lenders will analyze your recent and overall income documents to determine that your income is stable and likely to continue.
Seasonal Employment
USDA loan applicants with seasonal employment must have two years of work history in the same field, with no exceptions. If income is not being earned at the time of application (due to an off-season), the employer must verify that the applicant is still an employee and provide an anticipated return-to-work date.
If the applicant has a two-year history of receiving unemployment income during the offseason, this income may also be considered—provided it is directly tied to expected seasonal layoffs and documented on federal tax returns.
Gaps in Employment
Applicants must provide their lender with an explanation letter for employment gaps larger than 30 days unless their income history is obviously seasonal in nature. After reviewing the employment gap explanation, the lender will decide on the applicant's ability to earn stable and dependable income.
The Bottom Line
Being denied a USDA loan on the grounds of employment history doesn't prevent you from applying again in the future or consulting other lenders. If your lender doesn't find your employment history satisfactory, you can reapply after more time has passed, allowing you more time to build reliability.
Dan Bartelt has over 16 years of mortgage industry experience. He’s held roles as a loan officer and processor and has spent the past 8 years as an underwriter. Dan views underwriting as solving a puzzle—piecing together details to create a compelling loan story.
